Health Maintenance Organizations (HMO

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Health Maintenance Organizations (HMOs)

• Sandy H. Yoo
• May 5, 2006

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The Rise of Managed Care Organizations (MCO)

• The cost of healthcare has skyrocketed in the
  last few decades
• The components of healthcare have become
  increasingly complex
• Hence, the rise of MCOs to control costs and
  coordinate healthcare delivery

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MCOs

• Health care systems that coordinate the financing
  and delivery of health care services to covered
  individuals
• The goal is to control cost without sacrificing
  quality
• In 2004, over 177 million Americans were enrolled
  in a MCO

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Healthcare Choices

• Individual Health Insurance
• Group Health Insurance

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Health Plan Choices

• Government sponsored plans
• Medicare
• Medicaid
• Indemnity (fee-for-service)
• Managed Care Plans

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Major Types of MCOs

• Health Maintenance Organizations (HMO)
• Preferred Provider Organizations (PPO)
• Point-of-Service (POS) Plans

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Features of an HMO

• HMOs contract directly with physicians,
  hospitals, and other healthcare providers
• Network Providers offer their services at a
  discounted rate
• In exchange, HMOs offer referrals
• HMOs emphasize preventative care

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Capitation

• HMOs spread risk with network providers
• Physicians and hospitals receive a fixed amount
  per member per month (PMPM)
• If the cost of care is more expensive than the
  fixed PMPM, then providers must absorb the losses

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Utilization Review

• Utilization is expressed as a number of visits or
  services or a dollar amount per member per month
  (PMPM)
• Intended to identify providers providing an
  unusually high amount of services
• Cost-control and efficiency measure

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HMO Members

• Members pay a monthly premium, but little to no
  copay (5-10)
• Members select a primary care physician (PCP)
• Members can only see providers in the HMO network
• Members can only see a specialist if authorized
  by their PCP

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The Gatekeeper

• PCPs are generally
• family doctors, internal medicine docs,
  pediatricians and general practitioners
• PCPs are the gatekeepers that provide,
  coordinate, authorize all aspects of a members
  health-care
• Members generally must see PCP first

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HMO Pros and Cons

• CONS
• Most restrictive health plan
• Can only see in provides in the network
• Can only see a specialist if referred by PCP

• PROS
• Comprehensive range of health benefits for lowest
  out-of-pocket expenses
• Little to no copay

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Rules Regulations

• State-licensed MCOs are regulated under state law
• Self-funded (employer) health plans are covered
  under federal laws
• Currently, there is a lack of clarity, federal
  vs. state, as to who regulates MCOs and HMOs

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State Laws

• Each state has laws that require state-licensed
  MCOs to offer or include coverage for certain
  benefits or services
• Health plans are covered under the rules and
  regulations of each states Department of
  Insurance (DOI)

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Federal Laws

• Employee Retirement Income Security Act of 1974
  (ERISA)
• Health Insurance Portability and Accountability
  Act of 1996 (HIPAA)
• Consolidated Omnibus Budget Reconciliation Act of
  1985 (COBRA)
• Mental Health Parity Act of 1996 (MPHA)

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Federal Laws

• Newborns and Mothers Health Protection Act of
  1996 (NMPHA)
• Family and Medical Leave Act (FMLA)
• Pregnancy Discrimination Act (PDA)
• Age Discrimination in Employment Act (ADEA)
• Omnibus Budget Reconciliation Act of 1993 (OBRA
  93)
• Womens Health and Cancer Rights Act (WHCRA)

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ERISA

• Written to ensure uniformity in the
  administration of pension plans and retirement
  benefits
• ERISA does not require employers to provide
  health insurance
• However, ERISA regulates health plans already
  established

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HMO vs. PPO

• Similar to HMO, PPOs make contracts with
  providers
• Members do not have a PCP
• Members do not have to use in-network provider,
  but they receive financial incentives if they do
• Financial incentives are lower deductible and
  copays
• More flexible, but higher out-of-pocket expenses

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HMO vs. POS

• Members can choose either HMO or PPO at the time
  of service
• PCPs are encouraged but not required
• Members who use PCPs receive lower copays and/or
  deductibles
• Members can see out of network providers
• Ultimate flexibility, but higher out-of-pocket
  expenses

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References

1. Rich RF, Erb CT, Gale LJ. Judicial
   Interpretation of Managed Care Policy. The Elder
   Law Journal vol 13. 2005 Sept 13 86-89.
2. Stern C. The Fundamentals of Healthcare Benefits
   The Employer Perspective. 2005 Jan. Pending
   publication
3. American Heart Association, Managed Care Plans.
   Available at http//www.americanheart.org/present
   er.jhtml?identifier4663
4. Wikipedia Encyclopedia. Search terms Health
   Maintenance Organization, ERISA. Available at
   http//en.wikipedia.org/wiki/Main_Page